A NexGen Tax Primer:
Life Insurance & Tax Efficient Wealth Planning
With Dale Durand, VP, Estate & Tax Planning
Disclaimer
Invest better: Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund
investments. Please read the prospectus before investing. Mutual fund securities are not covered by the Canadian Deposit
Insurance Corporation or by any other government deposit insurance. Mutual funds are not guaranteed, their value changes
frequently and past performance may not be repeated.
The payment of distributions for Dividend Tax Credit Class and the Return of Capital Class should not be confused with a
mutual fund’s performance, rate of return or yield. If distributions paid by a mutual fund are greater than the performance of
the fund, then your investment will decline. Distributions paid as a result of capital gains realized by a mutual fund and
income and dividends earned by a fund are taxable in your hands in the year they are paid. For Return of Capital Class,
your adjusted cost base will be reduced by the amount of any returns of capital. If your adjusted cost base goes below zero,
then you will have to pay capital gains tax on the amount below zero.
The rates of return, annual distribution rates and income components comprising a given distribution contained in the tax
cases and reflected in certain graphs and tables are for illustrative purposes only utilizing various assumptions to
demonstrate the importance of compound growth and the effects of taxation on a given investment. They are not intended to
reflect, nor should they be interpreted, as an indication of future values or returns on investment in respect of any NexGen
Fund.
Tax liabilities on investment income and capital gains earned by a mutual fund cannot be mitigated nor can they be fully
managed in all circumstances. The risk increases the greater the investment return earned by the mutual fund. As a result, a
mutual fund may be required to make taxable distributions to investors in a NexGen Tax Class for which a distribution or
type of distribution is not optimal or in accordance with their tax preference. The tax efficiency of the Return of Capital Class
and the Compound Growth Class is enhanced the greater the demand for the Capital Gains Class, Dividend Tax Credit
Class and the Registered Fund Class.
The contents and information contained herein are for informational and educational purposes only and should not be
construed as legal, tax or investment advice. Information contained here is believed to be accurate and reliable at the date
of printing, however, NexGen cannot guarantee that such information is complete or accurate or that it will remain current.
The information is subject to change without notice and NexGen cannot be held liable for the use of or reliance upon the
information contained here.
Performance + Tax Alpha
As an Investor . . .
– You can select investments that suit your needs
However . . .
• You cannot control performance but;
• You CAN control the impact of taxes
What if you could add 2 or 3 percent to annual
after-tax rate of returns?
Improve Your Tax Alpha!
“Tax alpha is the additional after-tax return
you can add to your portfolio by taking steps to
minimize the tax burden”
~ Tim Cestnick, Finance Writer & Tax Authority
Funding Insurance Tax Efficiently
3 Key Benefits:
1. Tax Deferral improves long term wealth creation
2. Tax Efficient Income reduces annual tax bills
3. Life Insurance addresses final tax burden
The Tax Deferral Opportunity
Tax Deferral creates planning opportunities for:
– Investors
– Their trusted advisors
How?
Long term tax deferral can:
– Increase account & estate size
– Offer better intergenerational planning
Example: Defer Tax to Increase Account Size
Assumptions
Initial Investment
Annual Rate of Return for Both Portfolio
Timeframe
Tax Rates for
$
2,000,000
5%
25
British Columbia
NexGen
Corporation
Invested Capital
Total Growth
Cumulative Annual Tax Burden
Fair Market Value after 25 years
Personal
Net Tax Payable on Liquidation
Net to Estate
$
2,000,000
$
4,772,710
No Annual Tax Drag
$
6,772,710
-$
$
1,742,897
5,029,813
NexGen Benefit of Tax Deferral $
1,780,402
Tax Inefficient
Portfolio
$
2,000,000
$
3,501,788
-$
1,616,776
$
3,885,013
-$
$
635,602
3,249,411
Tax Deferral Works
$4,000,000
$3,500,000
$3,000,000
$2,500,000
$2,000,000
$1,500,000
$1,000,000
$500,000
$0
Ineffi ci ent Portfol i o
NexGen Portfol i o
The Income & Insurance Opportunity
Purpose
– To plan for the tax burden created at death
– To create a larger estate
What Life Insurance works best?
– Advisors and licensed insurance brokers know what is best for
the client
Important Action:
– Funding the insurance premiums tax efficiently
• To minimize annual tax drag
• Leave more in the portfolio to compound
Example: Funding Insurance Tax Efficiently
Assumptions
Initial Investment
$
2,000,000
Annual Rate of Return for Both Portfolios
5%
Province
British Columbia
Life Insurance Policy
$
1,500,000
Annual Premium
$
30,000
NexGen
Corporation
Invested Capital
Total Growth less Annual Tax Burden
Cumulative Annual Tax Burden
Insurance Premiums Paid by the Corp
Fair Market Value after 25 years
$
2,000,000
$
4,090,897
No Annual Tax Drag
-$
750,000
$
5,340,897
Tax Inefficient
Portfolio
$
2,000,000
$
2,943,482
-$
1,359,005
-$
750,000
$
2,834,477
Personal
Net Tax Payable on Liquidation
Insurance Payout
Net to Estate
-$
$
$
1,342,694
1,500,000
5,498,203
-$
$
$
$
1,557,571
NexGen Benefit
393,845
1,500,000
3,940,632
Summary: Funding Insurance Tax Efficiently
Net to Estate
NexGen Benefit
$
No Life Insurance
NexGen
Tax Inefficient
Portfolio
Portfolio
Insurance Incorporated
NexGen
Tax Inefficient
Portfolio
Portfolio
5,029,813 $ 3,249,411
$ 5,498,203 $ 3,940,631
$ 1,780,402
Benefit of Incorporating Life Insurance
$ 1,557,572
$
468,390 $
691,220
Tax Deferral, Tax Efficient Income & Insurance Benefit
= Greater Estate Value
$5,000,000
$4,500,000
$4,000,000
$3,500,000
$3,000,000
$2,500,000
$2,000,000
$1,500,000
$1,000,000
$500,000
$0
Ta x Ineffi ci ent Portfol i o
NexGen Portfol i o
Ta x Ineffi ci ent Portfol i o wi th Li fe Ins ura nce
NexGen Portfol i o wi th Li fe Ins ura nce
Notes on Funding Insurance Premiums
•
Return of Capital income is preferred for funding insurance premiums
•
For Corporations
– Have the CCPC own the life policy and fund the premiums via ROC
– At death of insured, any unrealized growth will be taxed in the final tax
return of the insured
– At death, the policy is paid into the CCPC and at year end may be paid to
the estate of the deceased free of all corporate and personal taxes
• Via the Capital Dividend Account
• May be subject to slight adjustments for ACB
– Ensure the proper corporate reorganization to avoid double taxation
• Consult your accounting professional
How Does NexGen Add Value?
14
NexGen’s Innovation
Markets up or down, Tax Planning adds value!
– Match your NexGen Fund with the tax solution that matches your
client’s needs
The Big Picture: Funding Insurance Tax Efficiently
3 Key Benefits:
1. Tax Deferral improves long term wealth creation
2. Tax Efficient Income reduces annual tax bills
3. Life Insurance addresses final tax burden
NexGen offers:
• Unique tools and strategies to minimize tax
• Strong, Diverse Investment Management
Take Action
1. Identify current and prospective clients seeking:
• Long term tax deferral
• Tax efficient income
• Better intergenerational planning
2. Share the wealth of knowledge
• Webinar replay
• NexGen Fund and tax materials
3. Offer customized portfolio and tax analysis
• We can help you with your best prospects
• Individuals, corporate clients, professionals
For more information
Access CLIENT FRIENDLY materials including:
– A replay of this presentation (within 48 hours)
– Case examples
– Educational information
– Client-friendly documents on tax efficient investing
and NexGen
www.nexgenfinancial.ca/insurance
Thank You
Questions?
FYI: Personal Tax Rates